This time last year internet company Tencent was one of three China-based corporates spending big money on VC and M&A deals, but as 2015 saw Alibaba and Baidu focus more on fewer, private equity-sized deals, it emerged as China’s most active corporate venturing investor.
Tencent continued to invest across the stages, but most of its deals can be divided into sub-$10m seed and series A rounds, and $50m+ rounds being raised at series C or later. It participated in at least eight rounds sized at more than $100m over the course of the year, and ended up playing a substantial part as China’s internet services sector entered its consolidation period.
The company’s biggest investment was in Didi Kuaidi. Tencent was already an investor in Didi Dache when it merged with rival Kuaidi Dache early this year to form China’s largest ride hailing company, and subsequently took part in the huge $3bn round closed by Kuaidi Dache in September.
Tencent also contributed to the $680m of series E funding raised by US-based ride hailing service Lyft in May, a round in which Didi Kuaidi also participated. It subsequently took part in a $500m round closed by electric car maker NextEV in September, indicating its interests lie in both sides of the transport sector.
Another Tencent funding target in 2015 was online food delivery platform Ele.me, with the firm taking part in a $350m series E round in January as well as a $630m round in August that valued it at $3bn.
In addition to ride and food ordering, Tencent also entered the ticketing sector, funding Weiying Technology, the operator of ticket selling app WePiao. Weiying closed a $105m round in February and a $235m round last month, both of which were backed by Tencent.
News coming out of China today indicates that Weiying, valued at $1.56bn as of November, has agreed to merge with rival Gewara to form an entity that will hold around 30% of the online ticketing market in China. As with the Didi Kuaidi merger, the deal is indicative of the consolidation now taking part in China, a trend that has also reportedly brought forth Tencent’s next big investment.
Local services listing site Dianping and group buying platform Meituan agreed a merger in October and while the deal is yet to be completed, Tencent has reportedly lined up a $1bn investment in the company as part of a $3bn round that would value the merged entity at $20bn.
Tencent’s strategy when it makes these large investments can be linked to its core business, the WeChat messaging app. WeChat, which has 650 million monthly active users, links to all manner of services, and the more of those services Tencent has a physical stake in, the more efficiently it can leverage its own offering while also boosting those businesses.
Food delivery, transport and ticketing are all relatively straightforward fits for this kind of platform, but Tencent’s next destination could be hinted at by another portfolio company, mobile medical consultancy service Guahao.
Tencent led a $100m round for Guahao’s late last year and returned for a $394m round in September 2015. Its interest in Guahao in a way represents its transition from non-essential leisure and consumer services to more intrinsic services such as health.
It will be interesting to see if the company begins investing in China’s booming education and fintech sectors in 2016, as both are being dominated by companies offering online and mobile services that in theory could be a good fit with WeChat. Tencent’s online banking affiliate, WeBank, is reportedly looking to raise $1bn, but it has been slow to go after fintech startups.
If Tencent has a limitation, it’s that most of its large investments are still in China, though interestingly almost all the seed and series A rounds it participated in this year were for North American companies, most of which are developing social apps and healthcare-based products.
Nevertheless, the firm does not invest in Europe nor, for the most part, elsewhere in Asia, unlike Alibaba, which has funded companies based in India, Japan, Israel and Singapore this year. That strategy makes sense in a way – China’s population is near double that of Europe, and Tencenr can always forge strategic links later.
The first step in any kind of geographical expansion will likely be India, where Tencent is reportedly looking to boost its investments next year. In the meantime, it looks set to build its offering sector by sector in a bid to achieve dominance in the Chinese internet space.